Are you stuck trying to figure out how to create some recurring revenue for your business?
If you have thought about selling your business, you’ll know that repeat sales are important. People coming back time and again simply looks good. They make your business more valuable and predictable to potential buyers.
Of course, the secret to transforming your company’s recurring business is to think less about what’s in it for you and more about how you can get customers to run up a monthly bill.
Take a look at the transformation of Laura Steward’s company, Guardian Angel.
She called in a valuation consultant to help put a price on her business. Steward was disappointed to learn Guardian Angel was worth less than fifty percent of one year’s sales.
The reason? Simply because she had little or no recurring revenue. To add to her problems, what sales she did have were almost entirely dependent on her personally.
Steward set about to transform her business into a more valuable company to potential buyers. To do this, she made three big changes to her business model:
The first thing Steward did was to design a monthly program called Angel Watch, which offered her business clients ongoing protection from technology problems. That included remote monitoring of customer networks, pre-emptive virus protection and staff on call via a helpline if there was a problem.
Steward approached her clients with a calculation of what they had spent with her firm over the past 12-month period, including the cost of her customer’s downtime. She made the case that, by signing up for Angel Watch, they would save money when taking into consideration both the hard costs of her firm’s time and the soft costs associated with downtime.
90% of her customers switched from hourly billing to the Angel Watch program.
Driving customers into Angel Watch became the primary focus of the company. Steward doubled her personal consulting rates. That way, when one of the customers who decided not to opt into Angel Watch called her firm, they were quoted one rate for a technician’s time or twice the price to have Steward herself. Not surprisingly, most customers opted for the cheaper option or re-considered their decision not to sign up for Angel Watch.
Steward also credits a small legal manoeuvre for further driving up the value of her business. She included a “survivor clause” in her Angel Watch contracts, which stipulated that the obligations of the agreement would “survive” a change of ownership of her company. This encouraged her customers to take the long view and provided the security and confidence in Angel Watch for them that conditions wouldn’t suddenly change.
Steward went on to successfully sell her business at a price that was more than four times the original valuation. Having regular income from customers is important to anyone buying a business. The more you can demonstrate this, the more a buyer will be likely to consider your company a viable proposition for sale.